Covid was a booster shot for ESG theme as funds saw high inflows
2 min read.Updated: 06 Jan 2021, 05:14 AM ISTHarsha Jethmalani
Climate-related risks are the top sustainability portfolio concern for 88% of respondents, as per the survey, which gathered insights from 425 investors in 27 countries.
The coronavirus crisis has come as a blessing in disguise for sustainable investing. The pandemic has accelerated global investors’ focus towards the environmental, social and governance (ESG) theme. Latest preliminary data published by global fund-flow tracker EPFR showed that equity funds with socially responsible investing (SRI)/ESG mandates have seen record inflows of $168.74 billion in 2020, in comparison to $63.34 billion in 2019.
Analysts say discussions on ill-effects of climate change have sharply gained in importance worldwide, making ‘conscious investing’ a key theme of 2021. A survey by consulting firm BlackRock in December showed that investors representing $25 trillion in assets plan to double their ESG assets in the next five years.
Climate-related risks are the top sustainability portfolio concern for 88% of respondents, as per the survey, which gathered insights from 425 investors in 27 countries. While growth in sustainable assets is most pronounced in Europe, it is growing in prominence in the Americas and Asia-Pacific as well, it added.
In the US, the President-elect Joe Biden administration is seen as a shot in the arm for ESG funds. While campaigning for the US Presidency, Biden announced several environmental initiatives and among them was a plan to achieve net zero emissions by 2050.
“We expect many of the drivers of strong returns for stocks with strong sustainability characteristics to continue in 2021. There is some expectation a Biden administration will be supportive of renewable energy within the federal scope. We believe renewable energy will enjoy long-term secular growth as the world transitions to a less carbon-intensive economy and as solar and wind power has become more cost-competitive with fossil fuels," Mary Jane McQuillen, head of ESG investment programme at ClearBridge Investments said in a report.
In line with the global trend, ESG investing is gaining popularity in India as well. Many companies are taking steps to reduce their carbon footprint by making huge investments in green energy projects. For instance, Indian cement producers have committed fresh investments to build waste heat recovery systems. Power generated through this system will reduce dependence on fuels and translate into cost savings in the long run.
Until 2019, there were only a couple of mutual fund ESG schemes, but in 2020, India’s large asset management companies like Aditya Birla Sun Life, Axis Mutual Fund and ICICI Prudential launched such schemes too. “Many Indian blue-chips are sharpening focus on ESG aspect, which is a good thing and it will show in the long-run in their balance sheets, may be in terms of reduced operational costs. But for now, it is difficult to say if their good intentions will reflect in valuations," said an analyst with a multinational brokerage firm.